-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DHwUWDHAKWFfXwpA5vWZdfEN2ByFWE8p9AvQzA6j8yiUvU0wHtQMXNd6rR6byFNh o5Y40G1uBlp887KhBtw8TA== 0000906504-01-500032.txt : 20020410 0000906504-01-500032.hdr.sgml : 20020410 ACCESSION NUMBER: 0000906504-01-500032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BONTEX INC CENTRAL INDEX KEY: 0000041052 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 221427551 STATE OF INCORPORATION: VA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05200 FILM NUMBER: 1789924 BUSINESS ADDRESS: STREET 1: ONE BONTEX DR CITY: BUENA VISTA STATE: VA ZIP: 24416-0500 BUSINESS PHONE: 5402612181 MAIL ADDRESS: STREET 1: PO BOX 751 CITY: BUENA VISTA STATE: VA ZIP: 24416 FORMER COMPANY: FORMER CONFORMED NAME: GEORGIA BONDED FIBERS INC DATE OF NAME CHANGE: 19920703 10-Q 1 sept10q01.txt FORM 10-Q FOR SEPTEMBER 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 2001 Commission File No. 0-5200 BONTEX, INC. (Exact name of registrant as specified in its charter) VIRGINIA 54-0571303 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE BONTEX DRIVE, BUENA VISTA, VIRGINIA 24416-1500 (Address of principal executive offices) (Zip Code) Registrant's telephone number: 540-261-2181 Indicate by checkmark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ( X ) NO ( ) Indicate the description and number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Class Outstanding at November 12, 2001 Common Stock - $.10 par value 1,572,824 BONTEX, INC. FORM 10-Q FOR THE FIRST QUARTER ENDED SEPTEMBER 30, 2001 INDEX PART I. FINANCIAL INFORMATION Page No. Item 1. Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 2001 and June 30, 2001................................3 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) AND CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY First Quarter Ended September 30, 2001 and 2000......................4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS First Quarter Ended September 30, 2001 and 2000......................5 CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS...........................................................6,7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................8-12 Item 3. Quantitative and Qualitative Disclosures About Market Risk...12 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................13 Item 6. Exhibits and Reports on Form 8-K.............................13 2
PART I. FINANCIAL INFORMATION Item 1. Financial Statements BONTEX, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Data) SEPTEMBER 30, 2001 June 30, 2001 (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 1,003 $ 320 Trade accounts receivable, less allowance for doubtful accounts of $163 ($96 at June '01) 9,330 10,700 Other receivables 709 629 Inventories 5,772 5,444 Deferred income taxes 59 35 Income taxes refundable 2 - Other current assets 330 166 --------------------- ----------------- TOTAL CURRENT ASSETS 17,205 17,294 --------------------- ----------------- Property, plant and equipment: Land and land improvements 279 276 Buildings and building improvements 5,614 5,259 Machinery, furniture and equipment 18,199 17,691 Construction in progress 604 387 --------------------- ----------------- 24,696 23,613 Less accumulated depreciation and amortization 14,692 14,020 --------------------- ----------------- Net property, plant and equipment 10,004 9,593 Other assets, net 519 552 --------------------- ----------------- TOTAL ASSETS $ 27,728 $ 27,439 ===================== ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 8,841 $ 8,788 Long-term debt due currently 654 578 Accounts payable 7,036 6,808 Accrued expenses 1,949 1,869 Income taxes payable 288 368 --------------------- ----------------- TOTAL CURRENT LIABILITIES 18,768 18,411 Long-term debt, less current portion 1,925 1,568 Deferred income taxes 37 9 Other long-term liabilities 516 476 TOTAL LIABILITIES 21,246 20,464 --------------------- ----------------- Stockholders' equity: Preferred stock of no par value. Authorized 10,000,000 shares; none issued - - Common stock of $.10 par value. Authorized 10,000,000 shares; issued and outstanding 1,572,824 shares 157 157 Additional capital 1,551 1,551 Retained earnings 5,229 5,935 Accumulated other comprehensive income (loss) (455) (668) --------------------- ----------------- TOTAL STOCKHOLDERS' EQUITY 6,482 6,975 --------------------- ----------------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 27,728 $ 27,439 ===================== =================
See accompanying condensed notes to unaudited condensed consolidated financial statements. 3
BONTEX, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) AND CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands, Except Per Share Data) (Unaudited) CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS): FIRST QUARTER ENDED SEPTEMBER 30, 2001 2000 Net Sales $ 8,234 $ 9,128 Cost of Sales 6,504 6,993 ------------ ----------- Gross Profit 1,730 2,135 Selling, General and Administrative Expenses 2,334 2,393 ------------ ----------- Operating Loss (604) (258) ------------ ----------- Other Expense: Interest expense 197 217 Foreign currency exchange (gain) loss 8 (30) Other, net 20 2 ------------ ----------- Total Other Expense 225 189 ------------ ----------- Loss Before Income Taxes (829) (447) Income Tax Benefit (124) (157) ------------ ----------- Net Loss (705) (290) ------------ ----------- Other Comprehensive Income (Loss) Foreign currency translation adjustment 212 (350) ------------ ----------- Comprehensive Loss $ (493) $ (640) ============ =========== Net loss per share $ (.45) $ (.18) ============ =========== CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY: Stockholders' Equity, beginning balance $ 6,975 $ 8,948 Net loss (705) (290) Other comprehensive income (loss) Foreign currency translation adjustment 212 (350) ------------ ----------- Stockholders' Equity, ending balance $ 6,482 $ 8,308 ============ ===========
See accompanying condensed notes to unaudited condensed consolidated financial statements. 4
BONTEX, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (unaudited) FIRST QUARTER ENDED SEPTEMBER 2001 2000 Cash Flows from Operating Activities: Cash received from customers $ 9,986 $ 11,269 Cash paid to suppliers and employees (8,796) (11,605) Interest received 1 Interest paid (199) (250) Income taxes paid, net of refunds 66 (2) --------- --------- Net cash provided by (used in) operating activities 1,057 (587) --------- --------- Cash Flows from Investing Activities: Acquisition of property, plant and equipment (424) (267) --------- --------- Net cash used in investing activities (424) (267) --------- --------- Cash Flows from Financing Activities: Increase (decrease) in short-term borrowings, net (408) 883 Long-term debt incurred 580 0 Principal payments on long-term debt (148) (185) --------- --------- Net cash provided by (used in) financing activities 24 698 --------- --------- Effect of Exchange Rate Changes on Cash 27 3 --------- --------- Net decrease in Cash and Cash Equivalents 684 (153) Cash and Cash Equivalents at Beginning of Period 319 457 --------- --------- Cash and Cash Equivalents at End of Period $ 1,003 $ 304 ========= ========= Reconciliation of Net Loss to Net Cash Provided by (Used In) Operating Activities: Net loss $ (705) $ (290) Adjustments to reconcile net loss to net cash provided by (Used In) Operating activities: Depreciation and amortization 322 361 Provision for bad debts (32) 41 Deferred income taxes 89 (168) Change in assets and liabilities: Decrease in trade accounts and other receivables 1,613 819 Increase in inventories (287) (631) Increase in other assets (19) (215) Decrease in accounts payable and accrued expenses 10 (593) Increase in income taxes (98) 2 Increase in other liabilities 164 7 --------- --------- Net cash provided by (used in) operating activities $ 1,057 $ (587) ========= =========
See accompanying condensed notes to unaudited condensed consolidated financial statements. 5 BONTEX, INC. AND SUBSIDIARIES CONDENSED NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 AND 2000 AND JUNE 30, 2001 (Unaudited) (Dollars in Thousands) 1. The accompanying unaudited condensed consolidated financial statements have been prepared by Bontex, Inc. and its subsidiaries ("Bontex" or the "Company") in accordance with generally accepted accounting principles for interim financial reporting information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all material reclassifications and adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results of operations, financial position and cash flows for each period shown, have been included. Operating results for interim periods are not necessarily indicative of the results for the full year. The unaudited condensed consolidated financial statements and condensed notes are presented as permitted by Form 10-Q and do not contain certain information included in the Company's annual consolidated financial statements and notes. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2001. 2. The last in, first out (LIFO) method of inventory pricing is used by the Company in the United States. Inventories of the European subsidiaries are valued at the lower of cost or market using the first-in, first- out (FIFO) and weighted average bases. Inventories are summarized as follows:
September 30, June 30, 2001 2001 Finished goods $ 4,009 $ 4,020 Raw Materials 1,477 1,180 Supplies 701 659 ---------- ------------- Inventories at FIFO and weighted average cost 6,187 5,859 LIFO reserves 415 415 ---------- ------------- $ 5,772 $ 5,444 ========== =============
3. Business segment information related to the North American and European operations follows:
North American European Operations Operations Eliminations Consolidated First Quarter Ended September 30, 2001 Net Sales $ 3,389 $ 4,868 $ (23) $ 8,234 Net Loss (435) (270) - (705) First Quarter Ended September 30, 2000 Net Sales $ 4,081 $ 5,126 $ (79) $ 9,128 Net Loss (281) (9) (290)
6 BONTEX, INC. AND SUBSIDIARIES CONDENSED NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 AND 2000 AND JUNE 30, 2001 (Unaudited) 4. Net loss per share has been computed on the basis of the weighted average number of common shares outstanding during each period (1,572,824 shares). Diluted earnings per share is not presented because the effect of stock options is anti-dilutive. 5. During fiscal year 2000, the Ministere Des Finances, the Belgian tax authority, completed an examination of Bontex S.A.'s, the Company's Belgian subsidiary, tax returns for 1997, 1998 and 1999 and extended the tax examination to 1995 and 1996 based on certain items. Bontex S.A. has received notices of proposed tax adjustments to these tax returns. The proposed tax adjustments arise from items which are considered disallowed expenses by tax authorities, including commissions paid to certain distributors and clients, certain travel expenses and various smaller items including allowances for doubtful receivables and certain insurance premiums. The proposed tax adjustments by the Belgian authorities approximate $820,000. The Company believes, based in part on written opinion of external counsel, it has meritorious legal defenses to many of the claims and the Company intends to defend such claims. The Company's best estimate of the most likely amount payable for the foregoing tax matters is $239,000, (or 250,000 Euros, the local reporting currency for Bontex SA) and accordingly, a provision for this amount was accrued at June 30, 2000. The accrual amount in Euros remained at 250,000 at June 30, 2001, but due to fluctuations in the value of the Euro relative to the US dollar, the amount reported translates to $212,000 at June 30, 2001. Since June 30, 2001, the Company has been negotiating with the Belgian tax authorities regarding a settlement of the foregoing dispute. Negotiations are not final at the time of this filing, but the Company believes it has adequately accrued for any additional amounts payable. Accordingly, the net financial impact, if any, of an increased provision would be immaterial. Therefore, no changes were made at September 30, 2001 to the amount accrued at June 30, 2001 for the proposed tax adjustment. 7 BONTEX, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS QUARTER ENDED SEPTEMBER 30, 2001 (Unaudited) The Company's consolidated financial statements and notes to the consolidated financial statements should be read as an integral part of this discussion. Except for historical data set forth herein, the following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. Forward-looking statements include, without limitation, statements about financing plans, cash flows, availability of capital, growth opportunities, benefits from new technologies, financial condition, capital expenditures, future results of operations or market conditions and involve certain risks, uncertainties and assumptions. The words "estimate," "project," "intend," "expect," "believe," and similar expressions are intended to identify forward-looking statements. These and other forward-looking statements are found at various places throughout this report, and you are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements should, therefore, be considered in light of various relevant factors. Actual results may differ materially from these forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, excessive worldwide footwear inventories, a shrinking U.S. domestic market for Bontex products, decreased sales to key customers, increased competition from non-woven materials, the reduction of prices by competitors, the increase in the relative price of Bontex's products due to foreign currency devaluations, increased pulp and latex prices, capital illiquidity, unexpected foreign tax liabilities, the impact of any unusual items resulting from ongoing evaluations of the Company's business strategies, decreases in the Company's borrowing base, trading of Bontex common stock at a level where closing bid prices are too low to remain listed on the Nasdaq SmallCap Market, increased funding requirements for the Company's pension plan, inability to recover deferred tax assets, an inability by Bontex to renew its current credit facilities or obtain alternative financing, a market shift in demand from higher-quality products to more economical grade products with lower profit margins, higher energy prices, and increased costs of complying with environmental laws, and the impact of changes in political, economic or other factors, legal and regulatory changes or other external factors over which the Company has no control. RESULTS OF OPERATIONS The results of operations for the first quarter of fiscal year 2002 reflect lower operating results compared to the prior year's first quarter. During the first quarters of September 30, 2001 and 2000, the Company generated consolidated operating losses of $604,000 and $258,000 respectively. The net loss for the current quarter was $705,000 or $0.45 per share as compared to the prior year's first quarter net loss of $290,000 or $.018 per share. The increase in operating and net losses is mainly due to the decrease in consolidated sales. Also contributing to the higher net losses is the fact that the Company is recording deferred tax assets on its European operations and not in the U. S. Consolidated net sales decreased $0.9 million or 9.8 percent to $8.2 million for the first quarter ended September 30, 2001, compared to $9.1 million for the first quarter ended September 30, 2000. The Company's sales declines are a result of lower sales to Asia, which continues to experience economic problems, as well as certain Asian customers manufacturing for export to the U. S. who have reduced orders because of economic uncertainty in the U. S. retail market. Seasonality generally exists in that the first half of each fiscal year is typically lower in volume than the second half, which is largely due to customer's scheduled vacations, shutdowns, holidays and purchasing cycles. Over the past seventeen years, the Company has generated net income during the first quarter only six times, the most recent being in fiscal year 1997. Gross profit as a percentage of net sales (i.e., Gross Margin) for the first quarter of fiscal year 2002 decreased slightly compared to the same period last year from 23.4 to 21.0 percent. This decrease in profit margins is 8 primarily attributed to competitive pricing pressures, which were partially offset by an overall decrease in certain raw material costs. The Company attempts to minimize the effects of cyclical changes in raw material costs through purchase contracts, forward purchasing and the application of technologies to improve process efficiencies. Principal cost factors include the cost of raw materials, including pulp and latex, two primary raw materials for the Company's products. The Company has entered into a number of purchase commitments for certain commodities, including pulp, latex and natural gas, for future manufacturing requirements in an effort to manage the effects of market price fluctuations and to secure adequate raw material supplies. However, there is no guarantee that these purchase commitments will result in lower purchase prices for the Company. To the extent that these purchase commitments obligate the Company to purchase pulp or latex at higher than the prevailing market prices, they could result in higher costs. Compared to the same period last year, Selling General & Administrative (SG&A) expenses decreased slightly, although they increased as a percent of net sales from 26.2 percent to 28.3 percent. The decrease in SG&A spending is mainly due to cost control efforts and lower sales. The increase as a percentage of net sales is due sales decreasing at a higher rate than overall S G & A expenses. Interest expense decreased $20,000 for the quarter ended September 30, 2001, as compared to the same period last year due to lower interest rates. Other comprehensive income, which consists of foreign currency translation adjustment, totaled $212,000 for the quarter ended September 30, 2001. Changes in this account are primarily the result of the fluctuation of the Euro versus the US Dollar between June 30, 2001 and September 30, 2001. The income tax benefit of $124,000 was recorded for the results of Bontex Belgium and Italy during the quarter. Because of the recurring losses at Bontex USA over the past several years, deferred tax assets on the operating losses are not being recorded in the USA. FINANCIAL CONDITION Consolidated stockholders' equity decreased $493,000 from June 30, 2001, and totaled $6.5 million at the end of September 2001. Financial ratios at September 30, 2001 generally decreased from June 30, 2001 because of the negative operating results. Cash increased by $683,000 because of the timing of customer cash receipts. Trade accounts receivable decreased by $1.4 million to $9.3 million, primarily because of the seasonal decrease in consolidated net sales from the fourth quarter of the prior fiscal year to the first quarter of fiscal year 2002. This is comparable to the prior year decrease in trade receivables from June 30, 2000 to September 30, 2000 of $1.6 million. The $328,000 increase in inventories to $5.8 million is mainly the result of higher raw material inventories resulting from lower sales. Other current assets increased $164,000 to $330,000 at September 30, 2001 from June 30, 2001, primarily due to prepaid insurance for fiscal year 2002. The level of other current assets is comparable with last year's September 30, 2000 balance of $321,000. The $411,000 increase in net property, plant and equipment is due to fixed asset additions of $1,083,000, which were partially offset by depreciation for the three-month period of $672,000. These fixed asset additions, primarily at the Company's European manufacturing subsidiaries in Belgium and Italy, primarily relate to certain manufacturing and lamination equipment to improve production capabilities and efficiencies. The Company has a loan and security agreement with Congress Financial Corporation/First Union providing for a secured credit facility and a term loan. This credit facility provides for a revolving loan in an amount up to $4 9 million, based on a lending formula that evaluates, among other items, the current accounts receivable and inventory of Bontex USA, which are pledged as collateral in addition to certain non-current assets. The lending availability fluctuates daily. Based on the lending formula, from the inception of the loan through September 30, 2001, an average amount of approximately $3.1 million has been available to Bontex USA under the revolving loan. This credit facility with Congress expires in January 2002. Furthermore, on five days notice to Bontex USA, Congress may change the lending formula and in effect reduce the amount available to Bontex USA under the revolving loan. This credit facility also requires Bontex USA to maintain a specified adjusted tangible net worth. At September 30, 2001, Bontex USA was in compliance with the debt covenant ratio. Management anticipates future compliance with the debt covenant ratio, but there can be no assurance the Company will remain in compliance. Bontex USA may not be able to renew its credit facility with Congress or to obtain alternative financing on acceptable terms, which would cause a material adverse impact on the Company's financial condition, liquidity and/or results of operations. Accounts payable, accrued expenses and short-term borrowings increased $245,000, which primarily corresponds to the increase in inventories. Long-term debt increased because of a new mortgage on the Company's facility in Italy and an additional fixed rate loan at Bontex SA in Belgium. Management believes that existing credit facilities will be sufficient to meet future operating and capital requirements. The Company's common stock is listed on the Nasdaq SmallCap Market. In order to maintain its listing on the Nasdaq SmallCap Market, among other things, the Company must maintain a minimum market value of the public float of its common stock of at least $1,000,000. During the first quarter of fiscal 2002, the Company's public float was within the Nasdaq SmallCap market requirements. If the closing bid price of the Company's common stock trades at a level below that necessary to maintain this minimum market value of its public float for thirty consecutive business days, the Company's common stock could become subject to delisting from the Nasdaq SmallCap Market. If delisted, trading in the Company's common stock could be conducted on the OTC Bulletin Board or in the over-the-counter market in what is commonly referred to as the "pink sheets." In the event of delisting, holders of the Company's common stock might find it more difficult to trade their common stock promptly and at reasonable prices or to obtain accurate quotations as to its price. It could also adversely affect the Company's ability to raise additional equity or financing, which in turn could result in a material effect on the Company's business, financial condition, liquidity and/or results of operations. FINANCIAL INSTRUMENTS The Company uses various financial instruments in the normal course of business. By their nature, all such instruments involve risk, and the Company's maximum potential loss may exceed amounts recorded in the balance sheet. As is customary for these types of instruments, the Company does not require collateral or other security from other parties to these instruments. However, because the Company manages exposure to credit risk through credit approvals, credit limits and monitoring procedures, the Company believes that reserves for losses are adequate. The Company has periodically used derivative instruments for the purpose of hedging commodity and interest rate exposures. As a policy, the Company does not engage in speculative transactions, nor does the Company hold or issue financial instruments for trading purposes. PRODUCT DEVELOPMENT Bontex has recently developed several new innovative products for footwear and nonfootwear applications, including a wall cover base material. The Company has also concluded a new marketing agreement for the wall cover product. The Company has a strategy to locate new technologies and bring them to the marketplace, but it is not possible to predict their level of sales potential or profitability at this time. No material sales have been generated yet for these new sourced technologies and products. 10 RECENT ACCOUNTING PRONOUNCEMENTS In September 2000, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - A Replacement of FASB No. 125." This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The Company does not expect that the adoption of SFAS No. 140 will have a material impact on the Company's results of operations, financial position or cash flows. In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." Statement 141 specifies criteria intangibles assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their residual values, and reviewed for impairment in accordance with Statement 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company is required to adopt the provisions of Statement 141 immediately, and Statement 142 is effective July 1, 2002. The adoption of Statement 141 did not have a material impact on the Company's results of operations, financial position or cash flows, and the adoption of Statement 142 is not expected to have a material impact on the Company's results of operations, financial position or cash flows. In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal use of the asset. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, and entity would recognize a gain or loss on settlement. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 is not expected to have a material effect on the financial position, results of operations or liquidity of the Company. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed of.; however, it retains many of the fundamental provisions of that Statement. SFAS No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in APB No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either ;has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. By broadening the presentation of discontinued operations to include more disposal transactions, the FASB has enhanced management's ability to provide information that helps the financial statement users to assess the effects of a disposal transaction on the ongoing operations of an entity. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. Early application is encouraged. The provisions of SFAS No. 144 generally are to be applied 11 prospectively. The adoption of SFAS No. 144 is not expected to have a material effect on the financial position, results of operations or liquidity of the Company. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain risks related to interest rates, foreign currency and commodity positions. Market risk is defined as the risk of loss arising from adverse changes in market rates and prices. The following disclosures provide certain forward-looking data concerning potential exposures to market risk. In general, the Company's policy is not to speculate on interest rates, foreign currencies and commodities in the markets. There is no expected material foreign exchange risk for the Company's debt, as these amounts are denominated in the local operating currencies of the respective operations. The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. Financial Instruments held for other than trading purposes at September 30, 2001 (dollars in thousands):
EXPECTED MATURITY DATE There- Fair 2002 2003 2004 2005 2006 after Total Value LIABILITIES Long-term debt Fixed Rate $ 424 $ 521 $ 451 $ 233 - - $ 1,629 $ 1,218 Average interest rate 5.16% 5.16% 5.19% 5.40% - - 5.20% Variable Rate $ 230 $ 240 $ 240 $ 117 40 83 $ 950 $ 950 Average Interest Rate 7.2% 7.1% 7.1% 6.9% 5.01% 5.01% 6.8%
At September 30, 2001, the company had no outstanding interest rate swap agreements. Therefore, approximately $9.7 million of variable rate debt is subject to the risk of interest rate changes. Additionally, approximately $7.7 million of the Company's debt is denominated in Euro, and because the Euro is the operating currency for the Company's wholly-owned subsidiaries for which the debt pertains, this debt is not considered subject to the market risk associated with foreign currencies. The above market risk sensitivity analysis does not fully reflect the potential net market risk exposure, because other market risk exposures may exist in other transactions. 12 PART II. OTHER INFORMATION BONTEX, INC. FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2001 ITEM 1. LEGAL PROCEEDINGS TAX During fiscal year 2000, the Ministere Des Finances, the Belgian tax authority, completed an examination of Bontex S.A.'s, the Company's Belgian subsidiary, tax returns for 1997, 1998 and 1999 and extended the tax examination to 1995 and 1996 based on certain items. Bontex S.A. has received notices of proposed tax adjustments to these tax returns. The proposed tax adjustments arise from items which are considered disallowed expenses by tax authorities, including commissions paid to certain distributors and clients, certain travel expenses and various smaller items including allowances for doubtful receivables and certain insurance premiums. The proposed tax adjustments by the Belgian authorities approximate $820,000. The Company believes, based in part on written opinion of external counsel, it has meritorious legal defenses to many of the claims and the Company intends to defend such claims. The Company's best estimate of the most likely amount payable for the foregoing tax matters is $239,000, (or 250,000 Euros, the local reporting currency for Bontex SA) and accordingly, a provision for this amount was accrued at June 30, 2000. The accrual amount in Euros remained at 250,000 at June 30, 2001, but due to fluctuations in the value of the Euro relative to the US dollar, the amount reported translates to $212,000 at June 30, 2001. Since June 30, 2001, the Company has been negotiating with the Belgian tax authorities regarding a settlement of the foregoing dispute. Negotiations are not final at the time of this filing, but the Company believes it has adequately accrued for any additional amounts payable. Accordingly, the net financial impact, if any, of an increased provision would be immaterial. Therefore, no changes were made at September 30, 2001 to the amount accrued at June 30, 2001 for the proposed tax adjustment. ENVIRONMENTAL Bontex USA received a renewal of its 5-year wastewater discharge permit on April 2, 2001. The new permit requires the Company to expand its wastewater treatment facility to increase the capacity of its equalization tank. The Company started the expansion last Summer and expects to complete it by the end of the calendar year. Prior to receiving the new permit, the Company had received a Notice of Violation from the Virginia Department of Environmental Quality (DEQ). In general, the DEQ stated in the Notice of Violation that it had reason to believe that the Company's plant in Buena Vista, Virginia, may be out of compliance with whole effluent toxic limits. In addition, the Company has received a Notice of Violation from the DEQ alleging that in June 2001, the Company's plant in Buena Vista, Virginia discharged wastewater solids in violation of Virginia law and/or the Company's wastewater discharge permit. The Company submitted detailed information to the DEQ relating to the Notices of Violation. At this stage, it is too early for the Company to make a reasonable estimate of the potential financial impact, if any, of these Notices of Violation. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: None (b) Reports on Form 8-K: Form 8-K dated July 23, 2001, reporting under Item 5 thereof the resignation of Ms. Patricia Tischio. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BONTEX, INC. (Registrant) November 14, 2001 /s/James C. Kostelni - ----------------------------- -------------------------------- (Date) James C. Kostelni Chairman of the Board and President November 14, 2001 /s/Charles W. J. Kostelni - ----------------------------- ------------------------------ (Date) Charles W. J. Kostelni Corporate Controller and Secretary 14 -----END PRIVACY-ENHANCED MESSAGE-----